For Farmers, A Fair To Middlin' YearDavid Greising
The U. S. agricultural economy has made a stunning recovery since the farm depression of the mid-1980s. Land prices and farm profits have rebounded. Exports are strong and will get a boost this year from President Bush's decision to grant $1 billion in credits to the Soviet Union for U. S. grain purchases. It's true that farmers are worried about the long-term trade picture, plus big domestic surpluses of wheat and diminishing government subsidies. Still, the industry is better prepared to cope with such problems than it has been in perhaps a decade.
If not quite as robust as in 1990, farm income still will be strong this year. The Agriculture Dept. figures that cash earnings--revenues minus operating and interest expenses--will be $55 billion to $60 billion, compared with $59 billion in 1990. That sort of showing despite less aid from Washington partly reflects the beneficial effect of a 30% reduction in farm debt in just five years, to $51.1 billion. As a result, farmers' interest costs are running less than 10% of their total expenses, vs. 16% at the depth of the farm recession in 1985. In fact, "agriculture now faces an overcapacity rather than a shortage of credit," says Kelly Holthus, chief executive of First National Bank of York, Neb., and former president of the American Bankers Assn.
Of course, farmers fret, things might be even better if a bumper 1990 harvest hadn't created huge wheat surpluses that the Soviet deal will only partly cut. In the space of a year, U. S. wheat stocks rose from 225 million bushels to 275 million bushels, driving prices down 8%, to $2.50 a bushel. Although reduced plantings may chop stocks by 10% in 1991, prices may not recover much.
At the same time, meat and poultry production are expected to remain at near-record levels in 1991, with beef and pork production rising 1% and 3%, respectively, and broiler output jumping 6%, to 19.5 billion pounds. Prices of all three may decline as a result. Even with big livestock herds consuming near-record amounts of corn, the price of that grain, which fell 11% to $2.30 a bushel last year, may drop again in 1991. So this spring's planting should be up only marginally. That's all good news for consumers. Farm surpluses may hold this year's increase in retail food prices to no more than 5%, vs. 6% in 1990.
What worries farmers more than current supluses is the 1990 Farm Act. Combined with an Administration initiative to negotiate lower duties on U. S. farm exports to Europe, the law was supposed to put U. S. agriculture on a free-market footing and cut Washington's price-support tab from $25.8 billion in fiscal 1986 to just $6.5 billion in fiscal 1991. In keeping with this goal, the law froze price supports at 1990 levels. It also set aside 34 million acres of wetlands or land threatened by erosion, and withdrew 15% of farm acreage from the price-support safety net. Farmers can gamble on prices and plant this acreage with any crop except fruits and vegetables, and still get federal crop insurance. "This flexibility is exactly what our farmers need" to become worldwide competitors, says Agriculture Secretary Clayton K. Yeutter.
OFF LIMITS. The problem is that the export part of the Administration's strategy looks bankrupt. Marathon negotiations on a new General Agreement on Tariffs & Trade broke off on Dec. 7, when the European Community refused to lift subsidies that were worth about $13 billion in 1990. There's only a slim chance of reviving the GATT talks, so most experts think the huge European market will remain cordoned off by levies such as the $5.80 a bushel on U. S. wheat and $4.56 a bushel on corn. The U. S. will try to work out deals with individual countries. But that approach won't reap the 90% reduction in subsidies and 75% reduction in tariffs that Washington was bargaining for. So Agriculture may have to reinstate some subsidies that have kept U. S. farm products competitive in world markets. If that happens, the farm bill's projected savings could evaporate.
The GATT breakdown came as U. S. farm exports seemed destined to fall below the $40 billion mark set in 1990, their best year since 1981. That figure could slip 4% in 1991, to $38.5 billion, experts say, reflecting improving production in developing countries such as China and tougher competition from Argentina and Australia. Lower exports to the Soviet Union, China, and Iraq will account for some 85% of this year's export decline. Before its invasion of Kuwait, Iraq imported more than $500 million a year of U. S. crops, making it one of America's top 10 customers.
All told, U. S. wheat exports will fall by 25% in 1991, to $3.3 billion, from last year's $4.4 billion, according to Agriculture Dept. estimates. Corn and other coarse-grain shipments will be off by about $1 billion, to $7 billion. Only soybean exports will remain near last year's $3.9 billion level. Livestock, dairy, and poultry exports may take up some of the slack. They're expected to rise 8%, to a record $6.9 billion, as higher sales to Japan and Korea make up for declines in trade with the European Community.
To help offset the mediocre trade outlook, farmers may face only a 2% increase in total costs this year, vs. last year's 5%. In fact, a price war in tractors may be about to break out. No. 1 Deere & Co. is trying to reduce huge inventories by cutting production some 12% this year. But its chief rival, Tenneco Inc.'s J. I. Case unit, is keeping tractor production high and plans to cut prices to gain market share.
That sums up the prospects for U. S. farmers this year. For nearly every problem they face, they may get a break that will help offset it.